Madrid crash imperils loss-making Spanair

MD-80 family of aircraft to come under renewed attention

By

AudeLagorce

LONDON (MarketWatch) -- It will be months before the investigation determines exactly what caused a Spanair flight to crash at Madrid's international airport on Wednesday, killing 153 people aboard, but the impact of the accident on the airline and the aircraft type could be felt sooner, industry observers said.

In one of the deadliest European commercial jet accidents of the decade, Spanair flight 5022 caught fire shortly after takeoff and crashed just meters from the end of the runway at Barajas airport in Madrid. The plane was full of Spanish holidaymakers headed to the Canary Islands.

Although the details of the chain of events that led to the crash were still sketchy Friday, as investigators continued to sift through the remains of the aircraft a rough picture emerged.

The plane, originally scheduled to take off at 1 p.m., aborted its first attempt and returned to its stand after the pilots noticed a temperature gauge signaling that overheated air was entering the jet liner. Technicians corrected the problem and the plane was eventually cleared to try and take off again, Spanair said. It crashed at 2.45 p.m. and burnt to pieces.

Of the 172 passengers and crew onboard, 153 died and 19 were injured. The identification of the bodies is underway.

Focus on the MD-82

The plane was a 15-year old McDonnell Douglas MD-82, a medium-range, single-aisle aircraft popular with regional airlines. Boeing
BA, +0.08%
bought McDonnell Douglas in 1997 and the last of the MD-80 family rolled off its production line in 1999.

The crash is likely to put renewed attention on the performance of an aircraft family still flown by many carriers, including AMR Corp.'s American Airlines
AMR, -2.10%
Delta Air Lines
DAL, -0.88%
and Italy's Alitalia (AZA). There are more than 800 models of the MD-80 series still in service.

Spanair, Spain's second-largest carrier behind Iberia (014720003), said it has no plans to ground its other MD-82 at this point.

In the past few years the aircraft family has been involved in several fatal accidents, including the crash of a One-Two-Go flight in Phuket in 2007 and the crash of a West Caribbean Airways flight after both engines flamed out in August 2005.

The MD-80 family also came under scrutiny from U.S. regulators earlier this month after an engine failure forced an American Airline MD-80 to make an emergency landing at New York's JFK airport. Earlier in the year U.S. Federal Aviation Administration forced American to ground its entire MD-80 series fleet to inspect the aircraft's electrical wiring.

Industry observers said that the media coverage's focus on the aircraft type in the immediate aftermath of the crash may do some short-term damage to the reputation of the MD-80 family, at least until a clearer picture emerges of exactly what caused the crash.

"I think people will be edgy about flying that aircraft because so much of the coverage focused on the aircraft type," said Michael Williams, the head of engineering and maintenance at low-cost airline consultancy Mango Aviation.

He wasn't surprised, however, by Spanair's decision to keep flying the aircraft and said it would take something "pretty dramatic," such as repeated problems within a short period of time or the identification of a major engineering issue related to the aircraft type, to trigger such a drastic move.

A typical crash investigation lasts at least 18 months, but how quickly details surface depends on what condition the cockpit voice recorder and the black boxes are found in and whether any of the crew survived. The Spanair flight's two black boxes have been recovered and are being examined.

A transcript of some of the information they contain may become available in the next few weeks, experts said.

"The Spanish may issue a factual summary, with no interpretation. It may take a month or so," said Hayes.

Initial reports suggested the crash may have been due to a problem with the aircraft's left engine, which is manufactured by United Technologies
UTX, -0.83%
unit Pratt & Whitney. But Hayes said an engine failure alone is not enough to cause a crash

"Aircraft are operated on the assumption that you will have an engine problem. If an engine indeed failed, it's the start of many other questions rather than the answer," he said.

Typically, the investigation is led by the country in which the crash occurred. The U.S. National Transportation Safety Board has said it will send a team to Madrid to assist in the investigation. The U.S. team will include technical advisors from the FAA, Boeing and Pratt.

Spanair's future

Wednesday's accident could be damaging for the reputation of the MD-80, but it could also have serious repercussions for Spanair and owner SAS, which already faced turbulence in the form of high oil prices, intense competition and wavering demand before the crash.

"When you've had a major disaster, at the margin you may find people who don't want to fly on that aircraft type," said Paul Hayes, director of safety for U.K.-based consultancy Airclaims. "You can also expect an accident to have some impact on the airline. How big of an impact depends how the airline handled the crisis, how it was perceived before and how the media portrays the accident," he added.

Still, what tends to happen is that a major accident acts as a catalyst for any staff issues or perception problems an airline had to boil over.

"All the dodgy washing comes back up," he said.

Following a failed attempt to sell loss-making Spanair, SAS last month unveiled plans to shed more than 1,000 jobs, or close to a third of the work force, at the airline. Spanair accounts for about 15% of SAS revenue.

Spanair said Thursday that some passengers had cancelled their flights with the airline.

The ratings unit of Standard & Poor's late Thursday revised its outlook on SAS to negative from stable, citing deteriorating trading conditions and the potential repercussions on the group of the Madrid crash.

"The outlook revision reflects Standard & Poor's concerns that tough underlying trading conditions, exacerbated by additional challenges stemming from the Madrid air crash, could place further pressure on SAS' credit profile," said credit analyst Leigh Bailey.

Bailer noted that while SAS is making considerable efforts on the revenue and cost side to mitigate the effects of "extremely challenging" industry conditions, failure to satisfactorily offset rising costs, delays to cost savings initiatives or a prolonged downturn in premium traffic could lead to pressure on the ratings.

Shares of SAS have lost roughly 12% since the crash.

It is rare for an airline to go belly up because of a crash, but it happened to low-cost airline ValuJet Airlines in the 1990s. The carrier executed a reverse merger with the much smaller regional airline AirWays Corp., now known as AirTran Holdings, following a series of safety problems and the crash of flight 592 on July 17, 1996.

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